DECENTRALIZATION AND RECENTMLMTIO‘N OF THE MERCHANNSNG FUNCUGN M for flit bogus a? M. A. MICHIGAN STATE UNIVERSWY Chutes Lewis Thomas, Jr. @935 THE-.513 This is to certify that the thesis entitled "Decentralization and Recentralization of the Merchandising Function" presented by Charles L. Thomas, Jr. has been accepted towards fulfillment of the requirements for Master of Arts degree in Food Distribution 91.”? 44 or professor Date June 28) 1955 DECENTRALIZATION AND RECENTRALIZATION of the MERCHANDISIN G FUNCTION By Charles Louis Thomas, Jr. W AN ABSTRACT Submitted to the School of Graduate Studies of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of General Business Curriculum in Food Distribution 1955 \\ _ 3" _ \ «r g . l Approved .. ‘_ 444.1,. _ I! - 2' a’b’ 0x0. Charles L. Thomas, Jr. Today the managements of the food chains are faced with the problem of re— vising their merchandising organizational structures to meet the growth of the industry. More people are being employed than ever before, and more competition is being met in virtually all areas. Because of these two elements, any company's organizational structure must be re-evaluated and alter constantly in order to provide a framework within which each individual can most easily work toward a common goad. Very little has been written on this particular subject. However, the "theoretical" concepts of organization which have been written about by many authors can be applied in some degree in almost every case. To supplement these "theories" examples have been used from a variety of companies. This information has been obtained from readings and from interviews with men in the food industry. In order to Show how one company has organized its merchandising function and has utilized many of the theoretical concepts, a case study was made of its mer- chandising department. This was done by visiting several of this company's branches and interviewing the various merchandisers. It is thought by many that administrative decentralization is a cure-all for man- agement ills. In many cases it has failed because there has not been recognized the need for ”recentralization" which is the means for control and coordination after a company has become decentralized. However, in order to understand decentralization and recentralization and the ways they both may be used, it is first necessary to investigate the formal methods by which an organization may be changed. The change can be effected by the addition of new levels. Many companies are now utilizing sub-levels within the basic level structure. Charles L. Thomas, Jr. The number of these sub-levels depends primarily upon the amount of work for which the primary level is responsible. The structure can also be changed by the addition of new departments, such as staff departments. The organization can also be changed by re—allocating authority within the existing corporate framework. This is perhaps the most important for it stresses the relationships between the various individuals. A combination of all of these leads towards decentralization, which is the maxi- mizing of authority at the lowest possible level. However, to aid the company in ob- taining its goals, there must be an over all direction from above so that the efforts of each individual are channelled toward the common goal. This latter provides the need for recentralization. The degree and methods of control and coordination basically depend upon the attitude of top management and the capabilities of the subordinates. The needs for each company will be different, and so no formula can be devised which may be applicable to all firms. At the same time the need for each company will vary ac- cording to the immediate situation. Consequently the basic consideration for any plan of recentralization is that it remain flexible. DECENTRA LIZ/\TION AND RECENTRA LIZ/\TION Of the MERCHANDISING FUNCTION By Charles Louis Thomas, Jr. A THESIS Submitted to the School of Graduate Studies of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of General Business Curriculum in Food Distribution I955 ‘rHESis "The Food Distribution program at Michigan State University is under the sponsorship of the National Association of Food Chains" . not of the letter, but of the spirit for the letter killeth, but the spirit giveth life. 11 Corinthians 3:6 A CKNOW LEDGl‘l M l'INTS No thesis is the product of one individual. What beliefs the author claims to be his own, are in reality an assimilitation of the writings, ideas, and exper— iences of others. It is for this reason that I am especially indebted to the authors of the books referred to, the professors and fellow students for their ideas, and the individuals of the particular chain studied in Part II for their experiences. A great deal of credit is due to my wife for being a critic and editor in the preparation of the material. TABLE OF CONTENTS Page CHAPTER I. INTRODUCTION ........................... 1 Purpose ........ - ...................... 1 Need for the Study ......................... 2 Limitations ............................. 4 Division of the Subject Matter ................... 5 Method of Obtaining Material for the Case Study ......... 6 PART I Changing the Merchandising Organizational Structure II. THE CONCEPT OF ORGANIZATION ................. 7 Levels Theory ..................... ' ...... 8 Departmentation Theory ............. . ......... 11 Functional Department .................. ll Sta ff Department ...................... 12 Role of the Staff .................. 13 Requirements of Successful Staff Work ...... 15 Dangers Connected with the Staff Department . . 15 Conclusion. . ........................... 17 III. THE ALLOCATION OF AUTHORITY WITHIN THE ORGANIZATION 18 Types of Authority ......................... l9 Delegation of Authority ...................... 24 Factors Affecting Degree of Delegation .............. 25 Process of Delegation ....................... 26 Ways to Enforce Delegation .................... 29 Advantages of Delegation ..................... 31 Problems of Delegation ...................... 32 IV. DECENTRALIZATION ............ . ............ 35 Forward. . . ........................... 35 Pa ge Functional Decentralization .................... 36 Federal Decentralization . . ...... ............ 38 Factors Affecting Decision to Deeentralize ........ . . . 40 Deciding the Degree of Decentralization ............. 43 Results of Decentralization .................... 45 Determining the Extent of Decentralization ............ 46 Other Considerations ....................... 47 V. RECENTRALIZATION - CONTROL AND COORDINATION . . . . 49 Needs for Recentralization .................... 50 Requirements of Control and Coordination ............ 53 Methods of Effecting Recentralization ............... 54 Problems and Dangers . . . ....... ‘ ............ 59 PART 11 Case Study of the Merchandising Function of One Food Chain vu. ORGANIZATIONAL STRUCTURE ................. 64 Physical Organization ........................ 64 Administrative Organization . ................... 65 Application of the Levels Theory .............. 65 Application of the Departmentation Theory ........ 68 Division into Functional Units ........... 68 Duties of the Merchandising Staff Units ...... 70 VIII. APPLICATION OF THE PRINCIPLES OF DECENTRALIZATION AND RECENTRALIZATION .................... 74 Application of Federal Decentralization .............. 74 Federal Decentralization Extended to the Stores ......... 76 Use of Functional Decentralization . . . . ............ 77 Informal Authority as a means of Recentralization ........ 77 Merchandising Problems Indicating Decentralization and Recentralization ....................... 79 Buying and Selection of Merchandise . . .......... 80 Product Acceptability in Certain Areas ........... 84 Attitude toward Coupons ................... 85 Maintaining Sales and Profits in the Face of Extreme Competition ....................... 87 Pa ge Establishing Markup ................... 88 Formulation and Presentation of the Sales Plans . . . . 9U Allocation of Space . . . . ............... 91 Conclusion ............................ 91 vi INTRODUCTION Purpose The term "decentralization" has become very fashionable. In fact, it has gained such wide acceptance that it is seldom that one hears an executive mention its counterpart, centralization, let alone advocate it. Even though the word de- centralization is widely used, even as a synonym for good management, there appear to be many misconceptions as to its real value and use in the business organization. This confusion can be largely attributed to several factors. The first is the theory that the institution of decentralization will serve as a cure-all for management ills. The second is that the effects of decentralization will im- mediately take place after a new organizational manual or chart is developed and becomes part of the company policy. The third area of confusion is the idea that it is simple to put into effect. If management adheres to these illusions, the gains which are possible by developing a decentralized organizational structure may ul- timately be destroyed. This paper is designed to Show that the use of decentralization is very complex and demands considerable study and work before it can function effect- ively. It must be understood initially that the main purpose of an organization is to bring about the coordination of human effort, and that decentralization is merely a tool to this end. "Until recent years emphasis was placed on the techniques of [\3 management. Lately business men have come to realize that the success and pro- gress of an enterprise is the sum—total of the success and progress of its people. "I It is often thought that decentralization, if practiced at all, should be complete. However,"If used in the extreme, it is both ridiculous and impractical . "2 In order to temper its use and keep it ”manageable", it is advisable at the same time to employ the tool of recentralization, which will provide control and coordination. The proper use of recentralization will enable management to derive the full ad- vantages of decentralization. yet retain the power to direct the organization in the ‘ obtaining of its goals. This study is not intended to prove that decentralization and the accompanying recentralization are the best tools of management. Rather it is designed to point out the various considerations of each. The use of these tools depends entirely upon the individual business, for as yet no formula has been designed which will meet all situations. The degree to which they can be used effectively will vary considerably from one firm to the next. F inally, the degree and use of them will differ in the functions within the individual company. Need for Study Every week more food chains announce intentions of expansion. This ex- pansion is taking place by several means. Some chains are merging with their former competitors. Others are building new stores which either replace the older, smaller ones, or advance into new territory. In virtually every case the l . Given, William B. , Bottom-Up Management . Harper and Bros., New York, 1949. Introduction. 2. Baker, Helen and France, Robert R., Centralization and Decentralization in Industrial Relations, Princeton University Press, New Jersey, 1954, p. 17 chains are building supermarkets which even in themselves can be labeled as medium sized businesses. As the companies grow. the problems of management grow at an equal or faster rate. More people must be managed. Where the larger stores twenty years ago employed in most cases no more than ten or twelve, they now provide jobs for over a hundred. The manager is no longer a worker by definition. but a supervi- sor whose main job is to coordinate his employees so that they produce more sales and profits. To assist him, more office personnel have been added. One job be- fore top management today is to devise methods by which the personnel can most easily accomplish their tasks. With the rise of the large supermarkets and the increase in the number of managers, more decisions have to be made. Not only do they have to be made, but they must be made well. Management must understand the nature of decision making so that it may be delegated to the most appropriate level or person. "In- sight into the structure and function of an organization can best be gained by analyzing the manner in which decisions and behavior of such employees are in— fluenced within and by the organization. "3 The fact that more decisions have to be made is accentuated by the observation that as the companies grow in size, the distance from the store and the office increases both mentally and physically. Because of this, it has been found that more decisions are made at the lower level. This becomes more urgent because, as the distance increases, the units enter new areas of competition. 3. Simon, Herbert A., Administrative Behavior, The MacMillan Company. New York, 1951. p. 3 In order to cope with this situation, the managements of the food chains have to understand the tools with which they can work. The organization that was effective ten, five. or even two years ago is now probably outdated, for organizations do not remain static. They change as the environments in which they exist change. It is too easy to retain the old structure, the old ideas, but time has proven that com- panies who maintain this attitude often lose their former competitive position. In- stead of becoming stagnant, the company must develop ways to meet the new situ- ations. They must find new ways to coordinate human effort. Even though these facts are realized by many managements, they are reluctant to change. Change means the abandonment of tradition. Initially it may mean added expenses. Mis- takes will be made during the process, but the question must be asked: "can we afford not to make these mistakes?" And finally change, as shall be discussed, can mean the decrease of the power of any one individual. On the other hand, many managements have taken actions to make the nec- essary moves to meet the new situations. But in some cases they have blindly accepted decentralization pg}; as. They have not, in the author's opinion, fully recognized the coexistent need for control and coordination. It is for these reasons that there is a vital need for this study in order to understand theways that an or- ganization can be altered, and the tools which can be used to accomplish this end. Limitations The subject of decentralization as applied to all the functions of a company would be much too large for a paper of this size. Consequently it will deal pri- marily with only the merchandising function. This was selected because it is one of the key operations of a food chain. It is one which contains many different points of view. no one of which can be called right or wrong. At the same time. it has become increasingly more important with the growth of competition. Successful operation of the merchandising function is one of the keys to greater sales and profits. Division of the Subject Matter The material of this study has been divided into two parts. Part I will be an investigation into several organizational concepts which might be called theo - retical. "There are many managers who hold the familiar cliche' that a matter may be 'all right in theory. but wrong in practice' . This cannot be true. If a theory is comprised of principles which explain relationships and facts and if principles are fundamental truths explaining certain phenomena, as indeed they are, there can be no inconsistency between theory and practice. The theory may be in accurate or it may not be applicable in a given situation, but it can hardly be right and appli- 4 Also in Part I there will be a discussion of cable and yet be impracticable. " authority and its delegation followed by a study of decentralization and‘recentral- ization. Throughout this section examples will be given, taken from readings about various companies. These companies are not all in the food field, but have been selected from retailing and industry. The reason for this is because it is felt that the general problems of management are the same, no matter in what industry they appear . Part II is a case study of one food chain, emphasizing the merchandising function. It is intended that in this part the reader will be able to see specifically 4. Koontz, Harold and O'Donnell, Cyril, Principles of Management. McGraw- Hill Book Co., Inc. New York, 1935. p. 9 6 how the principles brought out in Part I are applied in actual practice. In no way was this company selected because it represented a perfect example of organiza- tion. or decentralization. Instead it was selected at random, and is used only to show the problems that exist and how they are handled by one company. In order to make this an objective study. the name of the company has been withheld. Method of Obtaining Material for the Case Study Material for the case study was obtained by visiting the home office and four branch offices of a large food chain. The branches visited were selected at the sug- gestion of the home office. It is felt they present a cross—section of the company in that they are of different physical sizes and operate in different competitive situations. Each one, then, has its own problems and handles them by different methods. Atboth the home office and the branch offices interviews were held with several of the product merchandisers. A set of questions was asked them on how certain merchandising functions were performed, and by whom the merchandising decisions were made. The interviews also covered the relationship between the various levels within the company, ie. , stores, branches, and home office. PART I Changing the Merchandising Organizational Structure CHAPTER II CONCEPT OF ORGANIZATION "Organization is the structural relationship between the various factors in an enterprise. "5 Too often an organization is thought of as merely the formal relationships between various boxesIappearin'g on the organizational chart. However, a successful organization is one that realizes the importance of the personal as- pect, and provides for the coordination of the individuals who make up the structure. It enables the individuals to work together in a concerted effort toward a specific goal. Because the individuals are constantly changing, the organization must be able to change with them. This does not mean that the formal organization is to — be altered with every personnel shift. It does mean though, that it must be flexible ’ enough to adapt to the personnel who fill the various positions. The formal organization does provide a very necessary function. Primarily, it prevents the individuals from working in a vacuum. It establishes job specifi- cations and relationships. It enables the individual to work freely within a specified sphere. Ideally it must not destroy spontaneity or discourage original thinking. 5. Spriegel, Wm. R. and Davies, Ernest C., Principles of Business Organization, Prentice Hall, Inc., New York 1946. p. 33 The formal organization is in constant need of re-evaluation. Because economic conditions are constantly undergoing alteration, the goals and objec- tives of the company are likewise affected. One particular goal may have been reached, or found unattainable. In its place a new goal is formulated. At times the former organizational structure may be adequate, but more often than not, a new structure must be developed which will enhance the possibility of succeeding in the new effort. It is the responsibility of top management to find the new ways. This problem can be approached from three different angles, each one of which can be applied to any given situation. 6 The Levels Theory The first of these is often referred to as the "levels theory". Any business may be thought of as a system of levels. Each level is developed and maintained according to the nature and importance of the job. In a supermarket, for example, there is usually found three distinct levels: clerks, department heads, and manager. The manager, since he is responsible for the entire operation, is given the author- ity over the other two levels. Even though only one man occupies this position, it is distinct within itself, for no one else in the store has been given the same auth- ority. By the same token, department heads create another level. By the nature of their jobs, i. e. responsibility over a particular function of the store, they are given control over their various departments, and are at the same time held accountable by the store manager. The clerks usually occupy the lowest position within the organization because of the relatively low importance of their jobs. This same 6. Petersen, Elmore and Plowman, E. G., Business Organization and Management, Richard Irwin, Inc., Chicago, 1949. p. 281-284 0 type of levels thinking is not restricted just to the stores, but carries through the entire organization. From the Board of Directors down through the clerks will be found many levels, and generally levels within levels. The store is a distinct level within the company, and yet is itself broken into various segments as shown above. It has been only recently that management has created a new level within some of the stores. Because of the growth in their size, it was found that an assis- tant manager or co-manager was needed in order to assume part of the management responsibilities. By creating this position, a new level was established falling be— tween the store manager and department heads. If the stores once again become smaller, it may become advisable to delete this. The basic point is that manage- ment must be aware of the new problems which develop as the company grows. To expect the old managerial framework to be able to handle the additional load is in many cases a fallacy. One such means of distributing the responsibilities is by the creation of new levels, or the expansion of the existing ones. The hardest question to answer is when a new level should be created or an existing level expanded. There is no one guide which can be used. However, basic to the solution is the consideration of the human element: What is the most effective span of control for any one person in any one position. Some authorities say that this span should fall somewhere between three and six people and when it exceeds this limit it loses its effectiveness. 7 Ohers claim a smaller number, while others state the span can be limitless. It is apparent that the thinking on this is variable, which seems logical because of the many differences involved. It is 7. Dale, Ernest, Planning and Developing the Company Organization Structure ., American Management Association, New York, 1952. p. 51 ll) conceivable the span could be greatest if the individuals included within the frame— work were highly/competent and worked well together. On the other hand, the number would be smaller if the subordinates needed more supervision. The primary fact is that as the span is increased'by the addition of more subordinates, the direct relationships and the cross relationship are increased. This often means that it is harder to supervise. There are more people who are directly respon- sible to the supervisor, and there are more individuals at the same level who have to work with each other. In some cases this cross relationship may be very inti— mate, such as an office staff, and at other times, it may be quite remote as evi— denced by store managers in a district. It is felt that the "optimum span of control may be determined by weighing the advantages of retaining managerial responsibility as against the gains to be realized by delegating it. The span of control should be extended to the point at which the advantages of delegation are outweighed by the costs of extra staffs, additional supervision. and added difficulties of communica- tion. "8 There are several dangers which are connected with the addition of new levels. The first is that it often means more "red tape". In order to get authori- zation to perform a certain act, it may mean struggling through numerous layers of management in order to reach the responsible person. The second danger is that if carried to extremes it may make the Eompany unwieldy. Areas ofauthor— ity will probably overlap and many individuals will be confused constantly as to exactly over what they have authority and in which areas they can operate. This 8. Ibid ., p. 53 situation, if allowed to exist, can lead to demoralization of the employees for they are being prevented by the organization from achieving their goals. The Departmentation Theory The second method is called the "departmentation theory". This idea seg- regates businesses into several departments, each in charge of its own operation and an integral part of the organization. In turn this theory can be divided into areas, for it allows for the establishment of two types of departments .- the func- tional and the staff. The Functional Department The first of these is the functional grouping of the activities of the business according to their specific nature and duties. Thus in a food chain there might be found a merchandising department, personnel department, legal department, etc. Each one of these is responsible for a certain area of the company's operation. Within each is grouped all the activities which are necessary for the performance of the specific task. These activities are assigned to sub-departments which are created to specialize in one particular area of the departments' activity. In many merchandising departments there are found sub-departments of product buying, advertising, sales and promotion, research, etc. Technically, these are grouped together in one department because they are all integral parts of the merchandis- ing function, and need to be coordinated in order to formulate andproject an ef- fective program. In many respects the creation of these basic departments and their sub- departments leads to the centralization of authority within the departments themselves. The sub-departments are headed by specialists. These men by the very nature of their activities have to be technicians in their particular field. The basic require- ment of a successful department is the technical competence of its managers. However, the stress of this in many departments has led to the developing of men who know of little beyond their own areas. Within their spheres they are unex- celled. Taken outside of that area, they are lost because they cannot perceive all the factors which go into the whole. Consequently, someone must be placed in charge of the entire department who is able to interrelate all the parts into one workable program. He is the only individual who is at this time able to see the "forest through the trees". Even though there is a need for this "generalist", the stress is still placed upon the development of the specialist. It is interesting here to note an observa- tion by Peter Drucker " . . . a man who shOWS too much interest in the enterprise as a whole, and who tries to obtain a general view, is not likely to be promoted. "9 This is because these specialists, under a functional system, are necessary (even as they are under any system), and in order to become a "generalist", one first must have been a specialist in many areas. Sta ff Department The second of these department areas is the staff unit. Most large compan- ies today utilize this type of unit, for by its creation the line or operative Luiits are able to concentrate on operations and are not bogged down by the time consuming problems of planning and research. It has been found that as a company grows, the job of the line officers becomes more complex and covers a wider variety of 9. Drucker, Peter F., The New Society, Harper and Bros., New York, 1950, p. 214 of subjects. Some firms to combat this have increased the personnel under the supervisor so he is relieved of some of the detail work and is able to spend more time on planning. Other firms, as mentioned, have turned to the staff units. '_I_'l_1e Role of the Staff The role of the staff is varied. It is hard to mention all the areas in which it operates, for they will vary from company to company and with the degree to which they are used. However, there are several duties which they do perform which seem to be universally accepted as their primary roles. They counsel and make recommendations to the line executives. They are in a position to do this for they ‘- have the facilities to carry out research. Sears, Roebuck and Co. maintain with— in their central buying organization three staff units which do nothing but perform research on products. 10 These are the Technical Laboratories, Merchandise Development Department and the Merchandise Comparison and Inspection Depart- ment. Combined, all three of these counsel the buying department as to the various qualities, price comparisons, movement of items, etc., of their own brand mer- chandise. These staffs will recommend the action they feel the buying department should take. However, the actual decisions are left to the buyers. Besides making recommendations to the operating group, the staff nor- mally participates in creating company policy. In many cases they will suggest a policy which actually is little more than a framework. the details and application being left up to the line executives. The framework is designed to provide a sphere within which the operator can work freely, knowing his decisions do not hinder or 1.0. Emmet, Boris, and Jeuck, John E., Catalogues and Counters,gThe University of Chicago Press, Chicago, Illinois, 1950. p. 374 ff. contradict the company's objectives. In some companies, administrative action of this type is performed solely by the headquarters staff in participation with top management. In others, top management, the staff, and divisional management will create this jointly. The staff generally will analyze the results of the policy to see if the ob— jectives derived are the ones which were desired. If they are not. they will make the necessary adjustments and interpret them to the line. They will very care- fully explain Why and where the deviation took place, and how the new policy will help prevent it from taking place again. In order to do this effectively, the staff must be able to create enthusiasm among the line in order to enlist their full co- operation. Without this, the policy may never have a fair chance, and may be doomed for revision prematurely. The final primary role of the staff is to serve as a two-way channel for communication. The staff will make the recommendations to the line, and in turn the line will request certain services of the staff. The latter is actually the ser- vant of the line, for its only excuse for existence is to serve as an aid for the field organization. In this capacity it operates as a coordinating unit for the various departments or branches. In General Motors, for example, the central staff agency acts as a liaison between the various branches and coordinates their activities so as to reduce duplication and wasted effort. They have no direct authority, but may appeal to top management in a last attempt to force a "wayward" manager into line. 11 ll. Drucker, Peter F. , The Concept of The Corporation , The John Day Company, New York, 1946. p. 41 ' Requirements of Successful Sta ff Work There are several requirements for successful staff work. The violation of any of these may lead to the condition whereby the staff loses its effectiveness. If this happens, it logically follows that the line will also lose some of its effect- iveness because it is not organized to fulfill the staff function. The first of these requirements is that the staff sells the idea. Without this basic philosophy, the line may become the servant of the staff. The selling technique may be developed through an informal approach, persuasion, familiar- ity with the line and mutual respect, or any other method found effective. NeXt, the staff is required to take the initiative in promoting needed action. In order to do this, it must have all the necessary information which can be ob— tained from the operating units. The final requirement is that the line must feel free to consult the staff for its assistance. The line will do this only when and if the previous conditions have been fulfilled, and they are convinced that the staff is not in any way attempting to -- infringe upon their operation. Dangers Connected with the Staff Department There is a very real danger in the establishment of the staff department. Above it has been shown that the staff is the agent of the line. .This relationship has been found to be most effective, for it is the line which is directly responsible for the sales and pro fits.. However, in some cases, either consciously or sub- consciously, the staff has gained control over the line. Often, the staff executive will be superior in status to the line executive. In many firms the head of the staff organization is titled as a director or vice- lb president. Psychologically, this places the staff man over the operator and in many ways may influence the latter's decision. By the same token, the staff executive may be invested with certain sanctions such as promotions and firings, not directly, but by recommendation, as in the example of General Motors mentioned before, where the "staff could appeal to top management". Because the staff is a service agency, it is likely to have great technical competence which might tend to influence the line to such a degree that it never questions the staff recommendations but ac- cepts them _p_er_s_e. Finally, largely because of the latter, the line may default its authority and place it in the hands of its agent. Coexistent with the ever prevalent danger outlined above, there also appear to be several difficulties which can arise between the two. The staff, because of its overall knowledge and picture of the whole, may become frustrated becahse it can see the errors which the line is making. In Such a situation it may forget its position and "try to tell and not sell". If such a condition exists, there may develop what is called a "compulsory staff service". This is noticeably present in the ad- ministrative organization of the Catholic Church where it "operates to force the superior to listen to his subordinates. While the line decision rests with the super- ior, he cannot refuse to listen. "12 On the other hand, the line may feel that the staff knows little of the local conditions and thus its recommendations are worth- less. This can be accentuated if the company maintains many branches, each with its own local competitive situation. .12. Koontz and O'Donnell, Op. Cit., p. 143 17 Conclusion - Levels Theory and Departmentation Theory The problem before top management, then, is the decision when and if to add another functional or staff department. The addition of new departments, each with its own power to make decisions, is a further step toward decentraliza- tion. In some cases, it may become a necessity as the business grows and more activities are added or gain new importance. An example of this is the recent or- ganizational change in the Grand Union Company where merchandising, formerly concentrated under one department, is now divided into two separate sections: Perishables and Non-Perishables. It is interesting to note that this is also the creation of a new level. Whereas previously the merchandisers of the product groups: grocery, meat, and produce, reported directly to the Vice-President of Merchandising, they now report to their respective new department heads who then report to the vice-president. This example points out the fact that both the level and departmentation theories help solve the same problem. They are merely two different avenues leading toward the same destination. Their difference is that they examine different facts along the way. The third theoretical approach is the "Authority Allocation Theory". This method looks at an organization as logical system of allocating authority, respon- sibility, and accountability within certain men or groups. This has been separated because, while the first two can be indicated by the formal organization chart, the authority allocation theory is not so easily defined. However, this is perhaps the most important, for it provides the life blood of the organization and provides meaning to the other two. Because of this it shall be discussed in this light in the next chapter. CHAPTER III THE ALLOCATION OF AUTHORITY WITHIN THE ORGANIZATION As mentioned at the close of the last chapter, the allocation of authority is one method by which the organization can be changed. It was noted that the other two methods were formal changes in that they actually appeared on the organization chart of the company, However, the allocation of authority, although it is implied within the structural charts is not always precisely defined. Top management may feel the present situation may be best met by a shift in the allocation of authority within the existing corporate framework. Even though this may be the desire of management, there are many subtleties connected with the exercise and meaning of authority that in effect may destroy the advantages hoped for by its new alloca- tion. This condition may arise because of the various concepts of the meaning of the word. Authority has been defined as "the power over others . . . to undertake activities deemed by its possessor to be appropriate for the realization of enter- prise or departmental purpose. "13 Representative of another view is the idea that authority is a term for certain rigth that the individual acquires. Authority and power are different terms, though related. Power is the force that maintains the 13. Ibid., p. 47 19 right which is exercised by virtue of the sanctions of the higher authority. '4 It is not the purpose here to discuss the relative meanings of the word. It is intended merely to indicate that various executives look upon authority in different ways. Within one particular company, many meanings of the word can be found, to such an extent that practically every executive has adooted a personal meaning of the word. It is because of this wide divergence of understanding, that the plans of altering the allocation of authority may not be carried out as intended. Authority in an enterprise is granted by the corporation. To be purpose- ful it should not be assumed. If this was the case, there could not be any overall direction, for everyone from the president to the clerks would assume the author- ity they wanted and each would act within his own sphere with little or no interaction. Generally speaking, then, authority comes from the top down through the various layers of management. It is delegated to the individual levels in such amounts as to give them freedom to operate to the degree that management desires. Types of Authority The delegation of authority is meaningless unless it indicates what type is to be delegated. Too often authority is used as an abStract word. To give it meaning it must be related to the specific type which is to be covered by its use. There are basically four classifications of authority in any enterprise. '5 The .1 first of these is the authority to plan. Before any decision can be made, or any action taken, the project must be planned. There is a very definite distinction between 14. Davis, R. C., The Fundamentals of Top Management , Harper 81 Bros., New York, 1951. p. 289 15. Petersen and Plowman, Op. Cit., p. 289 planning and decision making although often clouded in usage. Planning necessarily preceeds, for it is the drawing together of a certain group of facts into unified wholes. These then become plans of operation, programs, and policies. Decision, on the other hand, determines the action by selecting one of these, or the combina- tion of several. In many instances planning authority is concentrated in a few men near the top of the business hierarchy, for it mainly is thought of in terms of company policy or long term goals. It may be located, for example, in a staff department reporting directly , to the president. It has the advantage by being placed at such ,_-. .- q